Introduction
This chapter examines the costs of dealing with the environmental costs associated with doing business in Northern Ireland. While environment costs are estimated to represent less than one per cent of company turnover38, increased concern for the environment has meant that these costs have increased in recent years and will probably continue to rise. The environment and its protection has become a prominent social and political issue on a global scale over the past twenty years and this is reflected in increasingly tight legislative restrictions on activities that have the potential for damaging it. In addition to the traditional ‘command and control’ methods of regulating undesirable behaviour there has also been a shift towards the use of economic or fiscal devices as regulatory instruments that work with the grain of the market by allocating costs to activities that damage the environment. This chapter explores the main environmental costs affecting NI businesses and attempts to assess these costs relative to other regions within the UK and the RoI.
Environmental Costs and their Impact upon Competitiveness
Environmental costs incorporate a range of both direct costs (such as removing waste or purchasing special equipment) and indirect costs such as taxes arising from environmental policies (for example, the landfill tax). Research has shown that environmental compliance can be considered as one further factor influencing a company’s competitiveness. Although compliance may represent a cost in the short term, Porter (1990) provides examples of where firms in some countries characterised by stringent environmental regulatory frameworks acquired first mover advantages. In addition, it could be argued that such regulation can lead to more general efficiency gains through use of cleaner and more modern technologies and possibly tighter management derived in response to environmental regulations.
Environmental costs implemented at the local, the national and international level are estimated to account for less than 0.5 per cent of company turnover (Hitchens et al, 1998a). However, it is generally accepted that the cost of environmental compliance will vary from firm to firm according to sectoral activity, regulatory frameworks and enforcement. Research on the economic impact of environmental regulation on company competitiveness is relatively sparse in Europe compared to the United States. However, a matched plant comparison (Hitchens, 1998b) in 1997 of 67 companies (primarily meat and dairy companies – a sector which has higher than average pollution) in Ireland, Germany and Italy concluded that firms can achieve national or international levels of competitiveness even when they face a relatively unfavourable level of regulatory costs. Such findings should have a general application to small and medium sized firms in other industries.
38
For 58 respondents in the ERINI survey who provided information on environmental costs these costs alone represented 0.42 per cent of total costs).
Environmental Costs
Hitchens et al (2001) explains that environmental policies have negligible effects on competitiveness for a number of reasons:
Probably the most important reason is that the cost of complying with regulation is a small fraction of total costs, sufficiently small to be overridden by differences in labour costs, exchange rate variations and so forth. Second, although stringency varies between countries, the differential in compliance costs between major trading partners is unlikely to be large (Hitchens et al, 2001).
Environmental Costs: A Breakdown
To get a better understanding of environmental costs it is important to examine them individually. This chapter examines the two most significant environmental costs facing companies: waste costs (primarily landfill) and water costs.
Waste Costs
The ERINI has identified a number of new or increasing environmental costs arising from recent or impending government legislation, which will impact upon manufacturing waste costs. For example, the European Landfill Directive and the EU Directive on Waste Electrical and Electronic Equipment (WEEE) will both have an impact upon business waste costs.
Landfill is the most common means of disposal for waste in Europe, however, it is linked to a wide number of negative environmental problems such as odour, emission of greenhouse gases etc and, in addition, there is also the problem of declining landfill space. The European Commission has introduced a Landfill Directive, which bans the land filling of liquids, specified hazardous wastes and other solid wastes and requirements have been introduced for the pre-treatment of wastes prior to land filling. These measures include:
• the classification of landfill sites (inert, hazardous and non-hazardous);
• procedures for waste acceptance to be adopted at landfills; and
• the types of waste for each class of landfill specified by waste acceptance criteria;
• prohibit the long-established practice of co-disposing both solid and liquid hazardous wastes with non-hazardous wastes;
Environmental Costs
Although the Landfill Directive has affected all European regions, the costs will vary from region to region because of different levels of legislative control and landfill site availability. However, in Northern Ireland costs are increasing rapidly due to the reduction in the number of landfill sites and hence availability of space, the escalation of the Landfill Tax and demands for higher standards of waste disposal.
Landfill Costs: Northern Ireland, England and Wales and RoI
The Department of the Environment’s 2003 consultation document on the proposed Landfill Regulations (DoE, 2003) predicts that the overall effect of the additional Landfill Directive measures will:
“… increase disposal costs, and hence provide greater impetus to minimise, recycle and re-use waste”;
This consultation document also notes that for Northern Ireland, the cost of disposal has been increased as a result of the increase in landfill tax of £1 per tonne per annum to 2004, and £3 per tonne per annum from 2004 and beyond. This increase has been applied to 2020, however, the DoE notes that the increase in landfill tax may be stopped at some time before then.
Since July 2004, hazardous landfill cost has risen substantially (e.g. asbestos disposal prices rose by a factor of five). Overall, there are many different types of hazardous waste and therefore a fixed cost cannot be assigned to hazardous waste disposal. A couple of examples show the wide variation in hazardous landfill costs.
• High temperature incineration (pesticides) costs range from £1000 – £3500 per tonne;
• Fluorescent tubes and computer monitors disposal costs around £500 a tonne39.
Ordinary landfill costs also vary substantially between regions. In Northern Ireland, commercial refuse can be collected by the local council for a fee, the price varying by the size and type of the refuse. For example:
• 7.5m3 skip costs £27.30 + VAT;
• 1100 litre container costs £6.85 + VAT;
• 8 black bags/boxes costs £2.40 + VAT40.
In Wales, The cost of waste disposal, excluding Landfill Tax, increased from approximately £20 per tonne currently to approximately £55 per tonne from July
39 Data obtained through discussions with Envirogreen Special Waste Services.
40
Environmental Costs
2004. The Landfill tax adds a further £15/tonne to these rates41. In England, where landfill is available, the costs were found to be on average £46 per tonne.
In the RoI the Landfill Levy was introduced in July 2002, in addition a shortage of landfill facilities has resulted in the RoI having higher landfill costs than Northern Ireland and a number of UK regions. Landfill costs in the RoI are on average £106 per tonne and in Cork City they are as much as £165 per tonne.
Where data are available it would appear that landfill costs in Northern Ireland are considerably less than those in the RoI but are similar to those in England and Wales (see Table 5.2 below).
Table 5.1
RoI Landfill Costs per tonne, 2004 (£)
Carlow 107.0 Meath 108.3
Cavan 86.0 Monaghan 93.1
Clare 96.5 Offaly 105.5
Cork 165.51 Roscommon 96.5
Donegal 91.71 Sligo 91.7
Dun Laoighre / Rathdown 20.57 South Dublin 123.4
Fingal 131.0 Tipperary 102.4 Galway 94.4 Tipperary 114.0 Kerry 117.2 Waterford 140.0 Kildare 115.8 Westmeath 93.1 Kilkenny 113.79 Wexford 124.1 Laois 93.1 Wicklow 123.4
Leitrim 89.6 Cork City Council 165.0
Limerick 106.9 Dublin City Council 91.6
Longford 95.2 Galway City Council 94.5
Louth 100.0 Limerick City Council 106.9
Mayo 95.8 Waterford City Council 140.0
RoI Average = £106.87 NI Average= £48.55
Source: Chamber of Commerce of Ireland
41
Environmental Costs
Table 5.2
Landfill Costs per Tonne, 2004, England, Wales, RoI and Northern Ireland
Region Cost per Tonne
England £46 on average (based on data from 4 County Councils).
Wales £55
RoI £106 on average
Northern Ireland:
Antrim Council £41.12
Belfast City Council £50.52
Derry City Council £52.29
Ballymena District Council £48.67 Ballymoney District Council £58.75 Coleraine District Council £55.22
Craigavon Council £38.75
Fermanagh £47.00
Cookstown £44.65
Average (Northern Ireland) £48.55
Source: ERINI Various Sources
Landfill: International Comparisons
Eunomia Research and Consulting (2002) provide costs for municipal waste management in ten European countries for 2001. The results show that the UK has relatively low landfill costs compared to other regions examined and the RoI ranks third highest (see Figure 5.1 below).
Figure 5.1
La ndfill Costs (including Ta x e s), Euro pe r Tonne , 2001
0 20 40 60 80 100 120 140 160 Net herl and s Denm ark RoI Italy Sw ede n Fra nce Fin lan d UK Spa in Germ any
Environmental Costs
Landfill Infrastructure
Declining available space for landfill is an issue in the UK and Northern Ireland and has obvious repercussions for the direction of future waste costs. The number of landfill sites in each of the countries of the United Kingdom is as follows42:
Table 5.3
The Number of Landfill Sites in Each of the Countries of the United Kingdom (2004)
Country Number of Landfill Sites Population per Landfill Site
Northern Ireland 46 36,956
England 973 50,770
Wales 73 39,726
Scotland 193 26,424
NATIONAL TOTAL 1,285 46,381
Source: ERINI, Various Sources
The number of landfill sites registered can vary because of new licensing regulations. For example, HM Customs & Excise record 65 licensed landfill operators in Northern Ireland, whereas the Department of the Environment have 46 registered landfill operators. The reason for this discrepancy is that new regulations brought in this year require each site operator to submit a Site Conditioning Plan. The DoE has received and approved 46 of these plans and so the number of licensed landfills which can receive waste is 46 in Northern Ireland. It should also be noted that the number of landfills in Northern Ireland in the near future is likely to fall, and inspections must be carried out to ensure existing ones can remain open. If a landfill site does not comply with regulations on the Site Conditioning Plan, its license will be revoked.
In 2007 new regulations will require all licensed landfill owners to submit a Pollution Prevention and Control Plan, possibly leading to a further decrease in landfill sites43 and hence a potential increase in costs. Recycling facilities, if sufficiently developed provide an alternative method of getting rid of waste either for free or possibly at a lower cost than landfill. However, recycling facilities in Northern Ireland are less prevalent relative to GB and this means that local businesses are left with little alternative but to use landfill with its associated higher costs.
42
Landfill Tax Credit Scheme - http://ww2.hmce.gov.uk/business/othertaxes/register2004.xls
43
Environmental Costs
EC Directive on Waste Electrical and Electronic Equipment: WEEE
This Directive affects producers, sellers and recyclers of electrical and electronic equipment - including household appliances, IT and telecoms equipment, audiovisual equipment (TV, video, hi-fi), lighting, electrical and electronic tools, toys, leisure and sports equipment. Implementation of the relevant legislation is currently at the consultation level within the UK. Undoubtedly, imminent changes in this area will have an impact upon waste costs for manufacturers or service suppliers of electrical and electronic equipment. (An ERINI interview with one such company found that the cost of such legislative changes could be reduced if the government was more proactive in providing information and support, thereby reducing the company’s consultancy costs).
Water Costs
The costs for purchasing fresh water and discharging waste water are both significant aspects of the environmental costs facing firms. There are quite wide variations in the structure of water and sewerage services between Northern Ireland and the rest of the UK and across Europe. In addition, the water and sewerage services in Northern Ireland are undergoing major reforms over the next few years that will have significant implications for charges for businesses and domestic consumers. All of these factors make like for like comparisons between water and sewerage charges in Northern Ireland (as they currently stand and are likely to change) and other competitor areas quite difficult. The paragraphs below consider first the existing situation with respect to cost comparisons and then go on to look at the proposed reforms to be introduced in Northern Ireland in 2007/08 and their cost implications.
Types of Industrial Water Use
Internationally the industrial sectors with the largest water requirements are the chemical, steel, iron and metallurgy, pulp and paper, food and drinks, and oil and petroleum industries (OECD, 1998). In Northern Ireland there are only fifty companies (approximately) who are categorized as large water users, that is, they consume 100 million litres or more per annum. This figure includes power stations. The overwhelming majority of commercial and industrial users of water and sewerage services in the region are therefore small to medium size concerns.
Northern Ireland Industrial Water Charges (Current)
The Department of Regional Development (DRD) has a remit for supplying water to all consumers in Northern Ireland and this is done through a departmental Executive Agency – the Water Service. Metered non-domestic customers pay a two-part charge comprising a standing charge depending on the diameter of the supply pipe
Environmental Costs
(ranging from £46 to £1,502 per annum), and a volumetric charge on the water delivered. Data supplied by Water Service on the volumetric charge levied over the past decade is set out in Table 5.4 below.
Table 5.4
Northern Ireland Water Service Charge: Industrial Water Supply
Year Unit Charge (Pence Per M3)
% Change on Previous Year (In Cash Terms)
1995/96 59.00 5.4 1996/97 64.35 9.1 1997/98 68.13 5.8 1998/99 72.34 6.3 1999/00 74.22 2000/01 n/a n/a 2001/02 75.97 n/a 2002/03 78.12 2.8 2003/04 78.72 0.76 2004/05 79.74 1.2 2005/06 81.76 2.5 Source: DRD website
The metering and consequently the charging of non-domestic properties for their water supply is not as widespread in Northern Ireland as it is in Great Britain. Approximately 85-90% of non-domestic properties in England and Wales are metered compared with only around 60% of equivalent properties in Northern Ireland. In contrast to England and Wales where all properties pay either a metered or unmetered charge for water, those properties in Northern Ireland that are not metered do not currently pay for water. Neither do properties that consume less than the domestic allowance, 200 m3 per annum. DRD’s Regulatory Impact Assessment (RIA) reveals only 41,500 non-domestic customers out of a total of 110,000 customers actually pay water charges at present.
UK Water Tariffs
As water supply is a privatised industry in England and Wales, industrial costs vary according to the supply company for particular regions. Data from OFWAT for
Environmental Costs
2003/04 show that large and intermediate users of water in Sutton and East Surrey pay the most per m3 for water (£1.29) while the equivalent business user in Hartlepool pays the least (40.08p). By examining price tariffs from all 27 water supply companies in England and Wales it was found that the average price of water to large and intermediate users in England and Wales in 2003/04 was 75.25p per m3 (which is very similar to the Northern Ireland tariff). However, while the variable charge per m3 appears relatively similar between the two regions, there exists substantial variations in the other charges (fixed charges and standard charges) that are applied to businesses. In Northern Ireland, the highest standard charge is currently £1,502, depending upon the size of the customer’s supply pipe. In England and Wales, however, a fixed charge is supplementary to the normal standing charge and can range from £51 per year (Anglican) to £81,720 (Dwr Cymru).
Water Charges: Northern Ireland vs RoI
In the RoI the cost of metered water for industry varies by county. In addition, a charge for the meter rental is also imposed – the cost of the meter is typically below 126 euro per annum. The county charges for industrial use in June 2004 were as follows.
Table 5.5
RoI Water Rates per m3 for 2004
County Area Rate £ per m3 % Diff NI relative to RoI
Dublin Corporation
North Dublin/Fingal South Dublin County Dun Laoghaire / Rathdown
1.00 0.94 0.74 1.15 -21.6 -16.3 + 6 -31.6 Dublin (All) 0.96 -18 Cork City North County South County West County 1.62 0.61 0.62 0.65 -51.5 + 29 + 27 + 21 Galway City County 0.83 0.58 -5 + 35 Limerick City County 0.95 0.92 -17 -14.5 Waterford City County 0.5 0.77 + 57 + 2 Rest of RoI (where data available) 0.81 - 3 All of Above 0.85 -7.4
Data Source: IDA Vital Statistics, July 2004, converted to m3 and sterling by ERINI (using July 2004 Exchange Rate £1 = 1.50499)
The above table shows that in Dublin the cost of industrial water use is £0.96 per m3 and for the other counties for which data is available; the average cost is £0.81 per m3. Thus water charges in Northern Ireland are 18 per cent lower than the Dublin equivalent. However, for other counties where the data is available there is
Environmental Costs
significant variation in prices charged, for example, when compared to Waterford City Northern Ireland’s industrial water costs are 57 per cent higher but conversely Cork City charges industry over twice the Northern Ireland rate.
Sewerage Charges
Unlike the rest of the UK, sewerage charges are not levied on non-domestic customers under the existing regime in Northern Ireland, although a small number do pay trade effluent charges (see below). The reform of charging will include the introduction of sewerage charges in Northern Ireland. The charge will consist of a standing charge and a volumetric charge applied to a percentage of the metered water delivered. For the majority of customers it is estimated that 95% of water delivered is returned to sewer although allowances are available for businesses where this is not the case (e.g. the food and drink industries). It is currently estimated that the sewerage bill will be around the same as the new water bill.
Trade Effluent Charges
In line with the ‘polluter pays’ policy, a system of comprehensive trade effluent charges for derated premises was introduced in Northern Ireland in 1992 and these are calculated using a similar formula as in Great Britain. All industrial, trade or commercial operations discharging trade effluent from de-rated, rate exempt or rate rebated premises to the public sewer are liable to pay trade effluent charges. Currently in Northern Ireland 500 customers pay trade effluent charges (DRD, 2004). The charges for any trade effluent currently varies depending upon the type of effluent produced, but the cost of standard effluent is currently 44.08p/m3. The calculation of trade effluent charges will be fully brought into line with GB practice in this area as part of the reform of charges. The Northern Ireland Water Service expect that the existing effluent customers are likely to experience an increase in their charges of up to 35 per cent as a result of this reform, however, the price increases will be phased in over a three year period.
Reform of the Water Service in Northern Ireland
Northern Ireland was not included in the privatization of water that took place in England and Wales in the early 1990s and these services are the monopoly preserve of an Executive Agency within the Department of Regional Development44. Apart from income from charges made to industrial and commercial customers the Water Service is funded directly from public expenditure45. This is regarded as
44
Some users acquire water from wells under abstraction licences issued by the Department of the Environment.
45
From 1991 to 1998 operating and loan charge costs of the Water Service were offset against revenue from the Regional Rate but with devolution the Water Service came fully on the DRD Vote.
Environmental Costs
unsatisfactory by the government principally for two reasons. First, in the present